Skype’s future under Microsoft: integration everywhere?

Microsoft has big plans for Skype; we just don’t know exactly what they are. But with Microsoft gaining both US and European regulatory approval for its $8.5 billion acquisition, the merger is likely to be completed in the near future, letting Microsoft integrate Skype into various product lines.

The most obvious places for integration are Lync, Microsoft’s unified communications platform, and Windows Phone. But over time, Skype could be baked into more products like Outlook, Windows Live Essentials, and Xbox Live, or even become a pre-installed component of Windows on the desktop, analysts are speculating. While users of the current Skype service probably won’t see any major changes immediately, future versions integrated with Microsoft products could get the Metro interface that dominates Windows Phones and the upcoming Windows 8 desktop software.

After receiving approval for the acquisition in June from the US Federal Trade Commission, Microsoft got clearance a few days ago from the European Commission. “Competition reviews are still under way in Russia, Ukraine, Serbia and Taiwan,” the Financial Times notes. But in all likelihood, Microsoft will soon be the proud owner of Skype and the provider of its services. While Skype has 663 million registered users, the number of active monthly users has been pegged at 170 million with concurrent users numbering 20-30 million.

Ballmer excited about Skype and Lync

Microsoft hasn’t been able to start integration while the acquisition remained pending, but CEO Steve Ballmer said in July at Microsoft’s Worldwide Partner Conference that Lync will be one of the primary beneficiaries of Skype’s technology. Businesses using Lync will gain a secure form of communication with consumers and other businesses because of Skype/Lync integration, Ballmer said.

“I’ve been asked by partners if this Skype acquisition somehow means we’re not serious or enthusiastic about Lync,” Ballmer said at the time. “Quite to the contrary. One of the great motivations in acquiring Skype is to enable the enterprise to have all the control it wants in communication and collaboration through Active Directory and Lync, and yet be able to connect people within enterprises to consumers, businesses, and trading partners around the world. Lync in some sense with Skype is a strategy that will allow the consumerization of IT to really proceed with full vim and vigor.”

Beyond Ballmer’s comments, Microsoft hasn’t talked much about how it will use Skype. In response to an inquiry from Ars, Microsoft pointed to a previously released statement that said, “We look forward to completing soon the final steps needed to close the acquisition, bringing together the employees of Microsoft and Skype, and creating new opportunities for people to communicate and collaborate around the world.” It added, “Until the deal is officially closed, we will not have further comment beyond this.”

Integration timeline unclear

Analysts are split on when Skype/Lync integration will come to fruition. There are two versions of Lync: a server-based product that is installed on-premises, and a cloud-based version that is part of Office 365. Skype is important for both versions, but particularly for Lync Online, which offers PC-to-PC voice and video calling, but, unlike the server-based version, lacks the ability to call landlines and cell phones (with the exception of a higher-cost Lync Online available only to large enterprises). Skype could be one of the methods for connecting the entire Lync Online customer base to the Public Switched Telephone Network [PSTN], Gartner analyst Bern Elliot told Ars.

Skype already has a product called Skype Connect that links Skype to SIP-enabled PBX systems. Since Lync Server, the on-premises version, is capable of connecting to PBX systems and the public phone system, “Skype and Lync could connect with one another through either the public phone system or a PBX,” Rob Helm, a research vice president at analyst firm Directions on Microsoft, told Ars. However, this would provide voice only and not a full federation with IM, presence, and video, which is presumably Microsoft’s goal.

Skype and Lync have different code bases, “neither of which were designed with the other in mind,” said analyst Rob Enderle of the Enderle Group. Enderle speculates that it could take up to two years to do a code migration that allows all Skype and Lync users to communicate with each other via IM, voice, and video chatting. Ditching the Skype back-end technology while keeping the feature set may seem strange given the $8.5 billion Microsoft is paying for Skype, but Enderle notes that Microsoft “really only wants the customer base with Skype and the relationships Skype has; they don’t necessarily want the code base.”

However, Elliot says Microsoft could create a gateway between Skype and Lync that allows full communication between Skype and Lync products within half a year. “I think that will happen quickly,” he said. After all, Lync already connects to AOL, Yahoo, and Windows Live IM. But the significance of joining Skype and Lync for voice, video, screen sharing and text communications to Lync would be vast. “The prize they have their eye on is to create an over-the-top public network that gives you rich communications, that encompasses both the enterprise and consumer,” Elliot told me.

Helm said not to discount the technology advantages Skype might bring to the acquisition. “Skype has some clever ways of working through firewalls that might be of interest to Microsoft,” he said. “Skype uses a peer-to-peer method for relaying traffic through firewalls. Lync has some methods for solving the same problems, but it’s possible the Skype methods will be more appropriate, especially in serving consumers and small businesses.”

Microsoft may be hesitant to use such technology, however. Some businesses ban the use of Skype precisely because of its attempts to circumvent network security policies.

Skype on Windows Phone

Bringing Skype to Windows Phones is also a likely priority for Microsoft. Skype is already available on iPhone and Android, so clearly one does not have to spend $8.5 billion to bring Skype capabilities to one’s smartphone platform. But Skype could gain deeper integration with the Windows Phone operating system. With Skype being owned by Microsoft, it could become a standard add-in for Windows Phones and positioned against Apple’s FaceTime, Enderle said. The challenges are less around coordinating with Skype than sidestepping carrier restrictions.

“The difficulty with doing it in smartphones is the carriers have been a little resistant in terms of a VoIP service in a smartphone, particularly in Europe,” Enderle said. “That’s probably going to be a carrier-delineated feature.” Assuming Skype comes to Windows Phones, a Metro interface will be in order.

Beyond the no-brainers of Lync and Windows Phone, we’re entering more speculative territory, but there are several other Microsoft products that could benefit from Skype. Skype will be a standalone product division within Microsoft, but that structure is more about the priority Microsoft is placing on Skype rather than any intention to silo it off from other Microsoft technologies.

Windows Live Essentials, a set of free software clients for Live services such as Hotmail, Writer, Movie Maker and Messenger, could be expanded with a new Skype client, Helm said.

“At a minimum, Skype will find its way into the client software so it will become a service supported by Windows Live Essentials,” Helm told me.

Integration between Skype and Outlook is possible, allowing Outlook mail client users access to contacts on Skype. But since Outlook already connects to Lync, which presumably will be integrated with Skype, a further method of connecting Skype and Outlook may be unnecessary.

Skype seems like a good candidate for Xbox Live, where it could become the preferred method for players to talk to each other during games, Elliot said. Xbox Live already has in-game voice chat, and Kinect supports both voice and video chat with Windows Live Messenger users. Skype could extend or replace both of these capabilities. Elliot also speculates that Microsoft might find a way to bring Skype to the Bing search engine, although what benefit Skype would bring to Bing is unclear.

Microsoft seeks to expand Skype’s appeal to consumers and businesses

An even bigger change that might make sense for Microsoft is making Skype one of the default options in Windows desktop. “Let’s just say every release of Windows contains a default Skype client, and part of the configuration when you start it up says ‘do you want to be a Skype user’?” Elliot said. “A lot of people don’t use Skype because they’re nervous about downloading it and they don’t know how.”

The Microsoft name could also entice businesses, particularly if Redmond focuses on creating an enterprise-worthy version of Skype. While Microsoft has been criticized for the high price of the acquisition, Elliot believes that “it’s a good time for [Microsoft] to add this functionality.”

With many acquisitions, the key to success is often not the technology but the people. Skype CEO Tony Bates will stick around as president of the Microsoft Skype division, but Helm said that Microsoft needs to keep the Skype team intact long enough to create links between Skype and its own software. The company’s $6 billion aQuantive acquisition floundered after the departure of high-level executives, Helm says, but Microsoft’s purchase of enterprise search vendor FAST turned out some important technology, including links with SharePoint.

“The key thing it comes down to is the people,” Helm said. “What are the people from Skype going to do once their retention bonuses have been earned?”

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